Consolidation Getting More Challenging

The container shipping sector has seen a massive consolidation wave over the past few years, reducing the number of carriers considerably.

It is estimated that by 2021, 75% of the global containership fleet will be owned by only seven top-tier liner companies, compared to 37% in 2005.

Further consolidation in the sector through mergers and acquisitions cannot be ruled out, however, the window of opportunity for the trend to continue is closing amid ever tighter regulatory rules and less free players to absorb, according to Jeremy Nixon, CEO of Ocean Network Express (ONE).

Speaking at Capital Link‘s 2nd Annual Singapore Maritime Forum on industry consolidation, Nixon said that the potential candidates to continue riding the consolidation wave are regional and niche carriers.

As explained, the creation of ONE from three different brands was not a usual merger process, as three companies joined forces to make a completely new brand.

ONE has been battling with teething problems since its inception in April 2018 due to unexpected regulatory delays that tightened the time window for the company to ready for launching.

A year into the company’s operation, these issues have been overcome and are “water under the bridge”, Nixon said.

The driving force behind the phenomenon has been primarily achieving economies of scale. In the container shipping sector this is of particular importance considering the amount of capital investment needed in new, ever bigger ships as well as the accompanying equipment, ONE’s CEO noted.

As such the potential for achieving synergies through mergers and acquisitions is much larger when compared to other pure bulk operators.

“As far as we are concerned as one of the larger international ship managers, we do lend ourselves, our size and our ability to achieve economies of scale, as well as the efficiencies and investment in technology, to working with larger consolidated companies. There is no doubt that some of the larger consolidated companies want to work with bigger partners who are compatible when it comes to investment in technology and service levels,” Mark O’Neil, President of Columbia Shipmanagement, said.

The Cyprus-headquartered company recently merged with Marlow Navigation, creating a holding company, Columbia Marlow. The merger created one of world’s largest ship managers.

O’Neil added that in the world of ship management there are huge drivers for consolidation, highlighting that big shipping companies are able to achieve economies of scale and performance optimization goals. Nevertheless, he pointed out that regardless, there are still opportunities for smaller companies to thrive and grow.

2019 is proving to be a year of mergers for the product tanker sector as well driven by the joining of forces of Hafnia Tankers and BW Tankers Limited which resulted in the creation of a product tanker behemoth earlier this year.

The market also saw another major consolidation move between DSS Holdings and Greece-based Capital Product Partners. The USD 1.65 billion merger resulted in the establishment of a new company, Diamond S Shipping Inc.

Commenting on the advantages of consolidation, Mikael Skov, CEO of Hafnia, said that if a company wants to capture all the spikes on earnings it has to have a global presence.
“Scale is more about having the ability to balance the percentages of your tonnage employment geographically. Hence, scale is very important from that perspective,” he added.

Nixon also stressed the importance of global presence through consolidation as a means of reducing risk by being able to deploy assets to different markets and potentially compensate for losses from weaker markets via presence in stronger ones.

Skov cautioned that if a merger looks good on a drawing board that doesn’t necessarily mean that its implementation would be “smooth sailing”. He concluded that the human element in the process is often overlooked, adding that the key in any merger are the right people to support and implement a company’s strategy.